Fuel Prices and the Cost of Living

Rehman Chishti Excerpts

Wednesday 16th March 2011 Commons Chamber

[Ms Eagle]

It is clear that increases in fuel duty have knock-on effects on petrol prices, and that fuel prices in general have complex knock-on effects in an economy. The Government have to think about that as they approach the Budget.

[Rehman Chishti (Gillingham and Rainham) (Con)]

Will the hon. Lady give way?

[Ms Eagle]

No. I have given way a few times, and I am going to get on with my remarks.

It is absolutely clear that increased fuel duty costs are eating further and further into already stretched household budgets, making the squeeze on living standards even worse. Businesses are suffering from problems caused by inflating commodity costs, tighter margins and restricted access to credit from the banks. Many are anxious about how they will get by in the next few years, and the continuing rise in the price of fuel is adding to that worry.

--- Later in debate ---

[Justine Greening]

Officials are not aware that the last Government sought any derogation in relation to VAT on fuel at any point in the past 13 years. In fact, if the shadow Chancellor had gone off to Europe with his influencing strategy, which was clearly so unsuccessful when he was running for the leadership, I doubt that there would have been any prospect whatever of his making any progress. The Labour party seems to have about as much understanding today of the economic situation that it has left our country in as it did of the situation two years ago, when it ran this country into the deepest and longest recession in living memory.

[Rehman Chishti]

Will my hon. Friend confirm that the shadow Chancellor was wrong in law when he said that there should a reversal of the VAT rise on fuel? Under EU directive 112 of 2006, that cannot legally be done.

[Justine Greening]

My hon. Friend is absolutely right. In fact, the EU directive on VAT states:

“Member States may apply either one or two reduced rates…The reduced rates shall apply only to supplies of goods or services in the categories set out in Annex III.”

That annex does not include road fuel, and other amending articles do not permit a reduced rate or exemption to be applied to transport fuel. That in is European Council directive 2006/112/EC of 28 November 2006 on the common system of value added tax, at article 98 and annex III.